Real estate trends in 2016

Real estate trends in 2016

Posted by Team Digital on January 20, 2016.

Many prospective buyers will be keen to learn whether 2016 is going to be a good year to enter the housing market. For those in the United States, whether buying, renting or selling, it appears likely that all transactions will be affected in some way by the Federal Reserve’s anticipated increase in interest rates next year. We show you how these policies can affect the real estate sector and which real estate trends you should look out for across the coming year.

Reorientation to normal growth rates

For the coming year a moderate rise in house sales rate and price developments worldwide is to be expected. Housing experts such as Mark Zandi, Chief Economist at Moody’s Analytics, predict that US house prices will rise at a very slow rate in 2016 – perhaps in the region of just 2-4% – which is a marked decrease in momentum from that seen in previous years. But this development is in no way disturbing: After 15 years of above-average growth of the global real estate market, this is rather a reorientation to a more normal market development with very positive effects. The market will be more balanced, with no distressed sales or a high vacancy rate of new buildings.

Increased purchasing power and optimal timing for property sales

The transaction volume is expected to increase in the global real estate market in 2016, as investors have sufficient capital and the economic foundations of the property owners have improved. According to studies, in particular the Generation Y (age: 25-39 years) will be active for the first time in the housing market as buyers. The Generation X (ages 40-50) as well as the generation of 60-68 years of age as buyers and sellers will also influence the worldwide real estate market significantly. Assuming that these two generations alike buy and sell, as well as with Generation Y entering the market as a new affluent group, 2016 appears the best year for a long time to sell properties.

Fewer homes on the market

The American Institute of Architects has predicted that 2016 is likely to see a record high in home improvement projects, with more homeowners than ever choosing to upgrade their existing homes rather than move to another property. Additionally, a large number of homeowners owe more than their homes are worth, which makes selling a less attractive prospect. All of this means fewer new houses on the market, resulting in fewer options for first-time buyers seeking to purchase starter homes.

No real estate bubbles to be expected

Historically low interest rates and rising incomes offset the higher prices of at least the German property market and thus allow a price increase without real estate bubbles. It remains to be seen how the wage levels develop worldwide and whether the purchasing power of potential home buyers improve.

Higher mortgage rates

Although US mortgage rates have been at a historic low since the start of this year, there’s an expectation that they will increase in 2016. Government-sponsored institution Freddie Mac predicts that the 30-year rate average will increase from its current 3.98% to over 5% by the end of next year. Should this happen, it could lead to a significant increase of up to 25% in the “unaffordable” real estate market. Research suggests that more millennials than ever before are looking to purchase homes in the next two years, but the higher cost of credit combined with stagnant wages could cause them to delay purchasing for another year. Higher interest rates result in higher monthly payments and have an immediate effect on the debt-income ratios of home buyers. But because many existing homeowners sell their property before the mortgage rates rise, the negative effects, in particular the US market, are expected as manageable.

More mortgage loan products required

If mortgage rates increase as expected, there could be significant demand for more loan products that do not require large down payments or years of insurance premiums. Chief Executive of IoanDepot.com, Anthony Hsieh, observes: “We have a real lack of programmes out there for consumers to extract equity”. Whilst some consumers will likely restrict spending, others are using their credit availability on assets such as boats, or personal loans, rather than on property. Freddie Mac’s CEO, Donald Layton, told mortgage bankers earlier this year that an increase in low down payment products is needed to fill the market gap that has left some borrowers unable to secure traditional home loans.

With local experts in 37 countries across four continents, Engel and Völkers is ideally placed to advise you on your local property market trends, and assist with your next move.